My thanks to Michael and the
Auckland Chamber of Commerce, and Steve and Massey
University, for inviting me back to this annual
event.

This is the fifth time I’ve spoken at this forum
since becoming Minister of Finance.

With your support
later this year, I look forward to returning in
2015.

Today I’d like to update you on the Government’s
economic programme and summarise the opportunities we have
to lock in the benefits of our improving economy.

And I
want to talk about what you can expect from another
National-led Government, should we have the privilege of a
third term.

Our approach will remain clear and
predictable.

In the shorter term, we’ve worked to
protect New Zealanders from the sharpest edges of the
recession, and to help the people of Christchurch through
the devastating earthquakes.

We have incurred significant
extra debt by spending in excess of our revenue to protect
the most vulnerable families, to maintain living standards
and to support the renewal of our second-largest city.

As
the economy improves, we will begin repaying that debt until
it is down to prudent levels.

At the same time, we have
set out on a longer-term path to repair the damage to our
economy from several years of excessive borrowing,
consumption and government spending, and the global
financial crisis.

So together with households and
businesses, we are rebuilding the economy’s capacity to
deliver more jobs and higher incomes over the next decade.
We are starting to see positive results.

More recently,
the Government’s focus has moved from managing our way out
of recession to managing a growing economy.

Initially,
growth in the economy has been driven by high prices for our
export markets, a catch-up in housing supply and the
Christchurch rebuild.

This momentum is turning into a
broader-based recovery where consumer and business
confidence has lifted, employment is rising across the board
and wages on average are increasing ahead of the cost of
living.

However, the Government is taking a long-term view
about the health of our economy. Each of the initial drivers
of growth will peak over the next few years.

Export prices
are likely to come back closer to normal levels, housing
supply will eventually catch up and the Christchurch rebuild
will peak and eventually slow.

We are setting out to
manage this growing economy with a five to 10-year view in
mind.

The Government will continue to focus on lifting New
Zealand’s underlying growth rate so that beyond the peak
of this economic cycle, incomes continue to rise and new
jobs continue to be created.

And it’s critical we
maintain a long-term focus. The rest of the world will not
stand still.

By 2017, Australia, the US, the UK and Europe
will have spent a decade since the global financial crisis
becoming more innovative and more competitive.

And while
emerging economies face uncertainty in the short term, they
will continue their march up the value chain in the long
term, adding to competitive pressure.

So later in the
decade, we will be challenged again on our ability to
improve the standard of living for all New Zealanders.

Our
task is to take the opportunity of a reasonable growth
outlook to deepen investment, upgrade skills, intensify and
diversify our export base and rethink the next stage of
gaining competitiveness.

We must avoid complacency that
might flow from believing today’s good times are
permanent.

We don’t want to make a habit of doing the
hard work under pressure, then putting our feet up just when
the serious long-term gains are within our reach.

We’ve
seen that happen in the last decade.

Until the mid-2000s,
New Zealand enjoyed a period of low inflation and high
growth.

Complacency then led to a rapid pick-up in
government spending, policy that undermined competitiveness,
soaring house prices and an unprecedented increase in
household debt.

By 2008, households faced mortgage rates
of almost 11 per cent and business rates exceeded 9 per
cent.

The high cost of capital dampened business and
investment growth.

It’s likely that relatively low
productivity growth recently is a result of that drop in
investment.

So while some increase in interest rates is an
inevitable consequence of a growing economy, we need to do
everything we can to ensure they don’t rise too sharply in
the next few years.

We must create the conditions where
higher levels of skills and better conditions for investment
lay the foundation for more innovation, more diversification
and more capital intensity.

Two areas where the Government
can act to dampen the interest rate cycle are through
housing market regulation and through government spending
control.

Demand for housing is rising, and a sharp
turnaround in migration flows will push demand even
higher.

Planning rules and attitudes have restricted the
supply of new houses that can be built in response to this
demand.

We are working to significantly increase the
supply of housing, particularly in Auckland and
Christchurch.

The Government remains determined to free up
supply so more low- and middle-income families can benefit
from home ownership and so we can protect the wider economy
from unnecessarily high interest rates.

Careful government
spending will also help to keep interest rates lower, as the
Reserve Bank regularly points out.

Politicians should not
splash cash everywhere just because we are within sight of a
paper-thin budget surplus next year.

If governments make
large cash injections into the economy when house prices are
already high, interest rates will be pushed up
further.

Our strong focus on better public services
demonstrates that a system organised around getting results
community by community can achieve so much.

In fact, the
possibility of more spending can be a distraction from a
growing focus in the public sector on solving complex
problems rather than throwing money at them.

The
National-led Government intends to avoid repeating the
mistakes of the previous economic cycle.

And we believe we
have the support of New Zealanders who can remember the
dashed hopes of debt-fuelled growth and floating mortgage
rates above 10 per cent.

They will benefit most from a
stronger, more stable, economy that can again weather global
storms and deliver higher incomes and more jobs.

But to
take advantage of the opportunities we have, we must
continue our relentless focus on doing hundreds of things
better.

New Zealand’s productivity growth can be
improved.

We know it will lift if all our efforts focus on
higher skill levels for all New Zealanders and excellent
conditions for more business investment.

As I mentioned to
you last year, we’ve pulled all of this together in the
Business Growth Agenda work programme.

This has six focus
areas:

Export markets

Capital
markets

Innovation

Skilled and safe
workplaces

Natural resources

And
infrastructure

The programme will be refreshed this year.
I want to thank the business community for its participation
in open and constructive discussions and helping to develop
the Agenda.

Improving New Zealand’s capital markets is
one of the focus areas within that work programme.

The
Government’s share offer programme is contributing to
deepening capital markets so more businesses can source the
capital they need for new investment.

Our sale of minority
shareholdings in three energy companies and Air New Zealand
is delivering several benefits – including reducing the
need to run up more debt to pay for new public assets.

It
is also reducing risk for taxpayers.

The public sector is
not well-equipped to manage the risks of commercial
businesses operating in competitive markets.

Sadly and
expensively for taxpayers, Solid Energy proves this
point.

Full government ownership of most electricity
generation was likely to become more problematic as market
competition intensified – as illustrated by the fact that
20 per cent of all consumers changed suppliers last
year.

The energy companies in the share offer programme
will benefit from extra market scrutiny in the same way Air
New Zealand has since it was set up as a mixed ownership
company by the previous government.

A 100 per cent
government-owned Air New Zealand would certainly not be the
nimble, world-beating airline it has become.

As you will
know, last year we successfully floated minority
shareholdings in Mighty River Power and Meridian Energy, and
we sold down 20 per cent of the Crown’s shareholding in
Air New Zealand.

We met every one of the tests we set for
the share offer programme.

New Zealanders were at the
front of the queue for shares.

Including the
Government’s majority stakes, at least 85 per cent of the
shares were held by New Zealanders after each
float.

We’ve so far raised around $4 billion, which is
being invested in new public assets such as schools,
hospitals and ultra-fast broadband.

That’s $4 billion we
don’t have to borrow from overseas lenders.

And the
share programme has been a shot in the arm for New
Zealand’s capital markets.

As the NZX has noted, 2013
was a tremendous year for the sharemarket on all
fronts.

Around $7.3 billion of new capital was listed on
the NZX in 2013.

The total number of trades jumped by more
than 30 per cent last year.

Driving this increased
activity was a renewed interest in the markets by New
Zealand investors.

More than 115,000 new common
shareholder numbers were issued to investors last year,
taking the total number of active accounts on the NZX to
585,000.

The sharemarket is now a more attractive option
for sourcing the investment required to boost
productivity.

The Government’s share offer programme has
no doubt contributed significantly to this extra interest by
New Zealanders in the sharemarket.

Today I can confirm
that ministers have agreed to proceed with the last of the
Government’s share offers - a minority stake in Genesis
Energy, subject to market conditions.

We expect to open
the offer in March and complete it in time for Genesis to
list on the sharemarket around the middle of April.

We
will set out all of the details in the next few weeks.

As
with the other share offers, New Zealanders will be at the
front of the queue for Genesis shares and we remain
committed to at least 85 per cent Kiwi ownership.

Each of
the previous share offers was structured to meet our
balanced objectives of achieving good value for taxpayers
and providing opportunities for New Zealand investors.

We
will be doing that again through some new features for the
Genesis offer.

First, the shares will be priced at the
start of the offer period – rather than at the end as we
have for the previous IPOs. This process is known as a
front-end book build.

It will provide more certainty for
Kiwi retail investors, because they will know the price when
they apply for shares.

For the first time in the
Government’s share offer programme, it means that New
Zealand sharebrokers will bid for shares at the same time as
institutions.

This will create stronger competition for
shares.

We also expect that a range of independent reports
from sharebrokers and other analysts will be available to
New Zealand retail investors – as was the case during the
Meridian IPO.

A front-end book build was used successfully
last year during the Synlait, SLI Systems and Wynyard
IPOs.

Second, the Government expects to sell between 30
per cent and 49 per cent of Genesis.

When we announced the
share offer programme almost three years ago, we said that
we would sell up to 49 per cent of these companies, subject
to market conditions.

Our initial advice is that a smaller
Genesis offer could increase price tension in the front-end
book build by offering fewer shares to more bidders.

But
we will not know that until we further test demand in the
market, where investors now have a wider choice of several
energy companies.

Our aim is to set a fair market price
that works for both taxpayers and investors.

We will
announce a final decision on how much of the company we
intend to sell before the offer opens.

Third, I can
confirm we will offer loyalty bonus shares to eligible New
Zealand retail investors in Genesis – as we did with the
Mighty River Power offer.

The quantity of bonus shares and
the loyalty term will be announced at the start of the share
offer.

In addition to the front-end book build and loyalty
bonus scheme, we are taking another step to make the process
more user-friendly for New Zealand investors.

Genesis
Energy directors and the Treasury have been consulting
closely with the Financial Markets Authority to produce a
separate Investment Statement for the Genesis offer.

The
more succinct Investment Statement will be the primary
investment document for retail investors.

We will have
more to say about the details and exact timing of the
Genesis share offer in the next couple of weeks.

I also
want to reiterate the Prime Minister’s announcement
earlier this week that Genesis will be the last state owned
enterprise or mixed ownership company to be floated by the
National-led Government.

The Government won’t be selling
any more shares in SOEs or mixed ownership companies –
either this term or after the election.

We’ve achieved
what we wanted to with the share offers in energy companies
and Air New Zealand.

We’re now returning to a
business-as-usual approach to SOEs.

That obviously
doesn’t preclude SOEs buying and selling assets
themselves, which they do all the time, or entering joint
ventures or other arrangements.

The remaining SOEs are a
combination of small entities, natural monopolies or
companies in sectors that are unsuitable for future share
offers.

What people don’t realise is that the value of
the share sales programme is just 2 per cent of around $250
billion of total assets owned by taxpayers.

And while the
share offer programme has been going on, the Government has
invested heavily in other parts of its portfolio of
assets.

Our focus will remain on improving the management
of this significant stock of assets, on behalf of New
Zealand taxpayers who rely on them to deliver high-quality
public services.

So we need to make sure they are getting
the best value for this considerable investment.

I’ll
give you a good example. Taxpayers own $17 billion of state
houses.

Around one-third of these houses are in the wrong
place or are the wrong size.

The state has not kept up
with the impact of changing demand in terms of the size or
location of state housing.

So assistance for vulnerable
New Zealanders in need is not as effective as it should
be.

The Government will continue working with other
housing providers who can better meet demand.

In housing
and in other areas, we will continue recycling taxpayer
assets to free-up money for reinvestment in areas where
there is genuine demand.

This is just one example of how
we will better manage existing and new capital on the
Crown’s balance sheet.

Conclusion

So
in conclusion, later this year New Zealanders will have a
clear choice as we head into the election
campaign.

11Under John Key’s leadership, the
Government, alongside households and businesses, has managed
New Zealand through some of the most significant challenges
we’ve seen in generations.

We have a faster-growing,
more sustainable economy. Wages are increasing faster than
the cost of living and tens of thousands more jobs are being
created every year.

We are providing more elective
operations, more New Zealanders are getting off welfare and
into work, and the crime rate is falling.

We’re on track
to surplus next year, and we’ll soon be able to start
repaying debt and investing a bit more in priority public
services.

The alternative is to put all of this at risk at
the election and radically change direction.

We’ve
already had a taste of what that change of direction would
involve: a combination of high government spending,
anti-market economic experiments and a lack of focus on what
really matters.

That is a backward-looking policy
prescription, particularly when the Government’s existing
programme is starting to pay dividends.

I believe New
Zealand now has the opportunity to significantly improve its
economic fortunes and provide a better future for New
Zealand families.

We are making good progress, but there
is a lot more to be done.

Providing we stick to our plan,
I’m confident that we will build the brighter future New
Zealanders deserve.

Thank you.

Important
notice

The Crown is considering offering shares
to the public in Genesis Energy Limited ("Genesis Energy").
No money is currently being sought and no applications for
shares will be accepted or money received until after an
investment statement containing information about the Share
Offer is available. The Crown does not guarantee the shares
in Genesis Energy. It is intended that an application will
be made to NZX Limited to list Genesis Energy on the NZX
Main Board. The application will be made closer to the time
that shares in Genesis Energy are offered to the public. No
such application has yet been
made.

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